Credit crunch heralds a new moral economy

The global economic crisis is providing business leaders with some elbow room
to behave properly, writes George Pitcher.

George Pitcher

12:34PM GMT 16 Feb 2009

Is it possible that we could be at the dawn of a new age of doing the right thing, rather than necessarily the most profitable or self-serving thing? The question arises in light of an announcement from the chief executive of GlaxoSmithKline, the world’s second largest pharmaceuticals combine, that GSK will radically shift its strategy to assist the fight against preventable diseases in the developing world.

Andrew Witty has pledged to share knowledge about potential drugs that are protected by GSK’s patents, to slash prices for drugs in the Third World and to plough back profits in those regions into the building of hospitals and clinics.

The global drugs companies have attracted fierce criticism for maintaining western prices in developing economies and protecting patents, especially on treatments for HIV/AIDS, while millions died in Africa and Asia. Mr Witty now encourages other drugs companies to follow his lead.

One doesn’t have to be unduly cynical to doubt that big corporations are principally motivated by altruism when they take such initiatives. We are suspicious that they calculate the PR value of such social responsibility, as to whether it’s better to be a greenwashed BP than a neo-con Exxon; that they may be mobilising ahead of regulatory or legislative demands that may be more heavy-handed than their own initiatives, or that they have spotted commercial advantage in undercutting their rivals. This is business as usual, anti-corporate activists claim, dressed up as morality.

But it is yet possible that the global economic crisis is providing business leaders with some elbow room to behave properly, for the common good. During boom times, the pressure on executives to compete is prohibitively intense; the banks are a fine example of forced competition leading to unacceptable risks on the narrowest of profit margins. The line between satisfying shareholders’ demands for growth and corporate collapse is a fine one – and one that has now landed bank chiefs in the parliamentary dock.

In a new environment in which earnings growth is less available to avaricious shareholders, competition begins to have looser parameters and the demand on directors is not so much to prosper as to survive. GSK may well be recognising that its own survival, and that of its competitors, is dependent on the survival of its markets. To serve its markets is, in the long run, to serve its shareholders.

This is an important development, because it implies that the market economy has to adjust structurally before corporate morality can follow.

The development of the corporate social responsibility movement over the past decade or so has been predicated, wrongly, on the virtuous process being the other way around, with social responsibility being forced on companies that can’t cope with it. And while company executives may personally want to do the right thing, the pressures of booming markets deny them the opportunity.

The credit crunch, with the demise of hot-shot bankers and Gordon Gekko whizz-kids, may be about to allow top executives, such as Mr Witty, to behave more as they would wish to, rather than being jeered for doing so by oppressive asset-managers and those wall-eyed bankers.

And it may be that such executives will still be able to make hard-nosed business cases for doing the right thing, for behaving morally without fear. But, whatever their motives, there will be more rejoicing in Africa and Asia for one global corporation like GSK that repents than for all the righteous activists who criticise its actions.